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Orbital ATK Inc Earnings Take Flight on Lower Taxes

The aerospace and defense technology company still expects to become part of Northrop Grumman within the first half of this year.

Orbital ATK (NYSE:OA) reported a strong start to 2018, posting healthy revenue and earnings growth thanks to excellent operational results and lower taxes. The company also continued to win new business, boding well for its future when it will likely be part of defense giant Northrop Grumman(NYSE:NOC), which agreed to acquire Orbital ATK in an all-cash deal last September. The two companies still expect that transaction to close in the first half of this year.

Orbital ATK results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$1.312 billion

$1.085 billion

20.9%

Adjusted net income

$154.9 million

$127.1 million

21.9%

Adjusted EPS

$1.76

$1.23

43.1%

Data source: Orbital ATK.

Image source: Getty Images.

What happened with Orbital ATK this quarter?

Operational successes paved the way:

Revenue from the flight systems group jumped 29.9% to $482 million due to higher activity in the aerospace structures division driven by major aircraft program ramp-ups. Sales in the defense systems group were also strong, rising 23.9% to $559 million thanks to greater activity in the defense electronics systems, armament systems, and small caliber systems divisions. Finally, sales in the space systems group increased 5% to $316 million mainly because of more activity on satellite system division contracts.

Margin improved sharply in the flight systems group, rising from 10.9% in the year-ago period to 12.6%, propelling a nearly 50% increase in operating income as a result of higher volume and improved program performance on certain of its propulsion systems and aerospace structures division contracts. Margin in the defense systems group also expanded, which helped offset declining margin in the space systems group due to changes in the contract mix.

The combination of strong revenue growth and expanding margins drove the uptick in adjusted net income. Meanwhile, earnings per share benefited from the reduction in the U.S. corporate tax rate.

Orbital ATK booked $1.95 billion of orders during the quarter and received $1.07 billion of option exercises. Those awards pushed the company's firm backlog up 14% to $9.4 billion while driving its total backlog up 12% to $16.6 billion.

What management had to say

"Orbital ATK reported excellent first quarter financial results, reflecting strong revenue and earnings growth together with robust new business wins," according to CEO David Thompson. He also stated that "operationally, the company carried out numerous successful space and defense missions in the first quarter of 2018, while also delivering record quantities of tactical missiles, precision weapons, aerospace structures and related systems to government and commercial customers." The company noted that its flight systems group produced a record 25,000 aerostructure parts during the quarter, while defense systems manufactured more than 350 million pounds of small-caliber ammunition.

Looking forward

Orbital ATK isn't providing an outlook due to its pending merger with Northrup Grumman. On Northrup Grumman's conference call, the company said that it received European Commission approval of the deal in February and that it continues to support the regulatory process in the U.S.

Author

Matthew is a Senior Energy and Materials Specialist with The Motley Fool. He graduated from the Liberty University with a degree in Biblical Studies and a Masters of Business Administration. You can follow him on Twitter for the latest news and analysis of the energy and materials industries: Follow @matthewdilallo